Recap: Week Ending February 12, 2016
Markets around the globe continued their slide closing down for the second straight week. In the United States, the S&P 500 led the way lower, closing the week down 1.43%. On the other hand, technology was one of the better performing areas as the NASDAQ 100 Index closed the week down slightly with a loss of 0.13%. Equities were rocked all last week by further concerns regarding China, comments by Janet Yellen and additional volatility in the price of crude oil. Last week saw China’s foreign exchange reserves fall to levels that have not been seen in 4 years. Such an event is a signal that China is attempting to use more powerful methods to stabilize its currency. The weakness in the Chinese Yuan can be rooted in the fact that many are exiting the Chinese economy and seeking further growth and expansion elsewhere. The fact that the Chinese have to use such levels of reserves introduced fear into the minds of many investors around the world. As a result of the action in China as well as other circumstances, Janet Yellen stated last week that the United States Federal Reserve will be cautious in their movement forward in regards to their target interest rate. Currently, the Fed target rate is sitting between 0.25% – 0.50% following a hike in December. Yellen stated that the worsening global economic situation is cause for concern and may result in the Fed having to lower rates back to near 0%. Such comments sparked fear in the eyes of many investors and induced further selling in the market. Futures traders who are place trades predicting the next rise in interest rates have made it clear that they do not believe that rates will rise this year and may not rise until 2018. Even though Yellen stated such comments last week, the market has been drifting towards these beliefs throughout the 2016 calendar year. So far this year yields on the 10Year US Treasury Note have fallen from 2.320 around the end of 2015 to a low 1.630 late last week. A move lower in yields indicates prices are moving higher. Higher bond prices are indicative of lower interest rates. Further volatility on the week was seen as the price of NYMEX crude oil took another steep drop. Last week was the second straight weekly decline for the energy product. Trade in oil last week resulted in a $1.98 decline. As a result of the weak energy complex the Toronto Stock Exchange Composite Index, or TSX, sold off. Last week the TSX lost 382 points or 3%. The move lower in the TSX is its second straight weekly loss. Such losses in the TSX are more pronounced as a result of the price of oil as many companies on the TSX extract or sell oil as a source of income. With this being said, there was a bright spot in the TSX as the price of gold moved higher in dramatic fashion, closing the week up $64.40 or 5.49%. The move higher in the precious metal is a result of growing global economic concerns as investors seek a haven investment. Additionally, gold rallied on the news that lower rates may become once again the norm in the United States. Lower interest rates indicate that there is no attempting to control inflation. Typically, gold is seen as a hedge against inflation, and as a result, would perform very well under a 0 interest rate policy move by the Federal Reserve.